2022/04/20 (029) Column

A Massacer for the Netflix Stock – but Dow Jones raises still up
The Dollar Index Hits 101 for 1st Time in 2 Years while Tuesday
Gold Extends Drop as Bond Yields Rally on Wednesday,
while Oil market price action falls nearly 2%.


Netflix Stock Plunges – Dow Still Up

After the strong previous day, Wall Street also posted price gains on Wednesday. In late trading, the Dow Jones Industrial ran out of steam, but the leading index ended up up 0.71 percent to 35,160.79 points. However, Netflix sent bad news – and thus clouded the mood, especially in the technology sector. With a fall in customer numbers for the first time in more than ten years in the past quarter, the streaming service shocked investors again after the disappointing outlook at the end of January. Netflix shares plummeted a little over 35 percent.

In the market-wide S&P 500 and above all in the technology-heavy Nasdaq 100, where the Netflix shares are listed, the development was more restrained compared to the Dow index. The S&P 500 closed down 0.06 % to 4459.45 points, the Nasdaq 100 fell by 1.49 percent to 13,998.53 points after its very strong previous day.

In its most recent economic report (Beige Book), the US Federal Reserve wrote that inflationary pressure will remain high. Problems in the supply chains, the tense situation on the labor market and the increased production costs continued to pose challenges for the companies, it said. According to the report, the US economy has recently grown at a moderate pace. It is supported by increased consumption in retail and services, which in turn benefited from the weakening corona pandemic.

In view of the disappointing development in the past quarter, Netflix now wants to crack down on users who share their access data and is working on a cheaper version with advertising. However, the authors of the current Bernecker shareholders’ letter believe that the group should already have passed the peak of its success. The competition is catching up and it is becoming increasingly difficult for Netflix to build on past successes. The capital requirement is correspondingly high.

The Netflix disappointment also put other stocks in the industry under pressure midweek. The papers of the entertainment giant Walt Disney, which has its own streaming offers, lost 5.6 percent at the end of the Dow. The titles of the audio streaming service Spotify went down by almost eleven percent and those of the streaming device provider Roku lost 6.2 percent.

The computer group IBM, on the other hand, exceeded expectations in the past three months, which caused the shares at the top of the Dow to rise by 7.1 percent. The group benefited from growth in the software and consulting business. According to the analysts at DZ Bank, the spin-off of the more traditional IT service business is paying off more and more for IBM.

Procter & Gamble (P&G) shares were up 2.7 percent. The consumer goods group scored with strong quarterly figures and once again raised its target for organic sales growth in the current financial year.Dollar Index Hits 101 for 1st Time in 2 Years

The dollar index hit the 101 mark for the first time since March 2020 on Tuesday, underpinned by elevated US Treasury yields, as investors braced for multiple half-point rate hikes from the Federal Reserve as it seeks to rein in soaring inflation. St. Louis Fed President James Bullard, a noted hawk, said Monday US inflation is “far too high” as he repeated his case for increasing interest rates to 3.5% by the end of year. The Fed raised its target policy rate by 25 basis points last month, and its forecasts released at the time showed policymakers expected rates to rise to 1.9% by year-end. Bullard’s preferred rate path would require half-point rate hikes at all six of the Fed’s remaining meetings this year. The dollar also gained on expectations of good economic data, with analysts pointing to US economic outperformance relative to other major economies amid global headwinds.

Brent Falls Nearly 2%

Brent crude futures tumbled to around $105 per barrel, pressured by a weak global economic outlook and concerns about subdued demand in top consumer China. The IMF and the Global Bank slashed their forecast for world economic growth following Russia’s invasion of Ukraine. At the same time, renewed  coronavirus-induced lockdowns in China clouded the demand outlook in the world’s top crude importer. Putting a floor under prices were supplies disruptions from Libya because of a wave of protests and the potential for an EU ban on Russian oil.

Gold Extends Drop as Bond Yields Rally

Gold prices weakened further below $1,950 an ounce on Wednesday after tumbling more than 1% in the previous session, as the rally in US Treasury yields overshadowed safe-haven inflows into bullion. The benchmark 10-year US yield surged to multi-year highs past 2.9% on Tuesday as investors prepared for the Federal Reserve to aggressively raise interest rates as it tries to stem soaring inflation. The dollar also held near a 2-year high, making gold less attractive for other currency holders. Meanwhile, the IMF on Tuesday slashed its forecast for global economic growth by nearly a full percentage point, citing Russia’s war in Ukraine, and warning that inflation was now a “clear and present danger” for many countries.